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Chapter 8:

Environment

By
Muhammet Said
Dinç

Contents


Definition

of Environment from an organizational
theory perspective


Differentiation between
the specific
and
the general
environment


The key dimensions of
environmental uncertainty


The
contributions
of Burns and Stalker, Lawrence and
Lorsch
, and Duncan



Reviewing the contributions of
population ecology
,
institutional theory
and
resource dependence


The effect of environmental uncertainty on
complexity, formalization and centralization



Defining Environment


The
environment

is made up of those
things
outside of
the organization’s
boundaries.


Organizations are affected by events
at the local, regional, national, and
global levels.






General Versus Specific Environment
(cont.)


Eight Key
Environmental Sectors
:

1) Industry

2) Cultural

3) Legal/Political

4) Economic

5) Technology

6) Human Resources

7) Physical Resources

8) Consumer/Client


General Versus Specific Environment



General environment
encompasses
conditions that potentially have an impact
on the organization.


Price and availability of petrol in the general
environment of cinema chains


Specific Environment
is that part of the
environment that is directly relevant to the
organization in achieving its goals.


General Versus Specific Environment
(cont.)


It is unique to each organization and it changes
with conditions, typically, it will include:


Clients or customers


Suppliers of inputs


Competitors


Governments


Unions


Trade associations


Public pressure groups


Example

of operator of Air New Zealand and
Woolworths for the operator of Sydney Airport.

Copyright © 2006 Pearson Addison
-
Wesley.
All rights reserved.

15
-
7

General Versus Specific Environment
(cont.)


An organization’s specific environment will vary
depending on the domain it has chosen.


Domain

refers to the claim that the organization
stakes out for itself with respect to the range of
products or services offered and markets served.


Volkswagen and Mercedes
-

Benz


Toowoomba TAFE and James Cook Universities in
Queensland


Shortly, Domain is the “space” in which the
organization “plays”


Change domain =change the specific environment



Actual versus Perceived Environment


Making a distinction between the
objective

or
actual

environment and the one that
managers perceive.


Measures of the actual characteristics of the
environment and measures of
characteristics perceived by management
are not highly correlated.


Furthermore, it is
perceptions


not reality
-

that
lead to the decisions
that managers
make regarding organization design.

Environmental Uncertainty


Environments differ in what we call environmental
uncertainty. Some organizations face:


Stable

environments


Few forces in specific environment of organizations are
changing


No new competitors, no new technological
breakthroughs vs.


D
y
n
a
m
i
c

environments


Rapidly changing technologies, new competitors, the loss
of major customers, difficulties in acquiring raw
materials, unpredictable price changes vs.





Environmental Uncertainty (cont.)


The number of uncertainties
that may exist in an
organization’s environment also influences
management action.


Hotels: ……………………..


A rail system: ………………


Mining companies: ………….


Retail stores: ………………..


Stable environment and those that are easier to
predict create significantly less uncertainty for
managers than do dynamic ones, and as uncertainty is
a threat to an organization’s effectiveness
management

will try to minimize it.

Burns and Stalker


Used
interviews

with managers and their own


observations to evaluate the
impact of
environment

on
organizational structure

and
management practice.


The
type of structure
that existed in rapidly
changing and dynamic environments was different
from that in organizations with stable
environments.


B & S labeled the two structures
organic

and
mechanistic
, respectively

Burns and Stalker
(cont.)


Mechanistic organization


Mechanistic structures are characterized by
high
complexity
,
formalization

and
centralization
.


They perform
routine tasks
, rely heavily on
programmed behaviors, and are relatively slow
in responding to the unexpected.


Most flow of information and communication is
vertical
.


Burns and Stalker
(cont.)


Organic organization


Organic organizations are relatively
flexible

and
adaptable
.


They rely on
lateral
communication rather than
vertical communication.


Power and influence is based upon
expertise

and
knowledge

rather than on authority of position.


Responsibilities are defined
loosely

rather than
rigid job definitions.


Emphasis is on
exchanging

information rather than
on giving direction.

Burns and Stalker
(cont.)

CHARACTERISTIC

MECHANISTIC

ORGANIC

Task Definition

Rigid

Flexible

Communication

Vertical

Lateral

Formalization

High

Low

Control

Centralized

Diverse

Influence

Authority

Expertise

Burns and Stalker
(cont.)


They believed that the most effective structure is
one that adjusts to the requirements of the
environment, which means using
mechanistic design
in a stable, certain environment
and
an organic form
in a turbulent environment.


They also focused that one was not preferred over
the other. The nature of
organization’s environment
determined which are organic and others which are
mechanistic.


Large firms may have some parts which are organic
and others which are mechanistic.


Motor vehicle manufacturers

Lawrence and
Lorsch


Studied ten firms in three industries:
plastics
,
food

and
containers
.


The three industries were deliberately chosen
as they
differ significantly
in the environmental
uncertainty associated with each one.


The underlying hypothesis was that
internal

environments of the firms must match the
external
environmental requirements.


The better the match, the more successful the
firm.


Lawrence and
Lorsch
(cont.)


Differentiation and integration
were
posited as the variables to examine to
determine the state of
the internal
environment.


Differentiation
, as used by Lawrence &
Lorsch
,
closely resembles the traditional definition of
horizontal differentiation, but in addition to
task segmentation, suggested that managers
will differ in their: (1) time frame, (2)
interpersonal orientation, and (3) goal
orientation.



Lawrence and
Lorsch
(cont.)


Integration

is the quality of collaboration
needed to overcome differentiation and
achieve unity of effort among units.


Integration
devices
:


Rules and procedures


Formal plans


The authority hierarchy and decision
-
making committees


They perceived both the organization and the
environment as having
subsets
: that is, that
parts of the organization
deal with
parts of the
environment.

Lawrence and
Lorsch
(cont.)

Lawrence and
Lorsch

Model

Lawrence and
Lorsch
(cont.)


They proposed that
the more turbulent, complex and
diverse the external environment

facing an organization,
the greater the degree of differentiation
among its
subparts.



Diverse external
env
.
+

differentiated internal
env
.
=

need for
an elaborate internal integration mechanism
to avoid having
units going in different directions


Shortly:


The environments are composed of a number of
subenvironments
,
each with different degrees of uncertainty.


Successful organization’ subunits meet the demand of their
subenvironments
.


Finally, the environment in which an organization functions is of
foremost importance in selecting the structure appropriate for
achieving organizational effectiveness.


Lawrence and
Lorsch
(cont.)

The Effect of Uncertainty on Differentiation and Integration in Three
Industries




Degree of uncertainty


Plastics

Food
-
processing


Container

Variable

industry

industry

industry

Environmental variable

Uncertainty (complexity,

dynamism, richness)


Structural variables

Departmental differentiation


Cross
-
functional integration

High

Moderate

Low

High

Moderate

Low

High

Moderate

Low

Lawrence and
Lorsch
(cont.)

DEPARTMENTAL DIFFERENTIATION BASED UPON SUBENVIRONMENT
CHARACTERISTICS

Duncan’s Complexity and Change
Framework


Robert Duncan classified environments along
two dimensions
.


First
,
the rate of change
of environments.


Some environments change
slowly

like
cement manufacturers
and

banks
.


Others are
rapid

changing such as the
fashion

and
telecommunications
industries.


Second

dimension, environmental
complexity
.


The greater the number of
elements

there are in an
environment, the
more complex
the environment.


Airlines= complex environment


Growing timber and baking bread companies= simple
env
.


The interaction of environmental
complexity

and
stability

forms
a two by two matrix, where different levels of uncertainty may
be identified.


Each of these levels of uncertainty
leads

to adoption of different
structural responses.

Duncan’s Complexity and Change
Framework (cont.)


Stability

enables decision making to be
centralized

and permits high levels of
formalization
.


Complexity

comes with the need to gather,
process and
respond

to numerous environmental
elements, each with their own demands.


This leads to
decentralization

and greater need
for
coordination
.


Duncan’s framework stands as a powerful
reminder of the
influence of environment
on
structure
.

The Role of Boundary Spanner


First, they have expertise in understanding and interpreting
the environmental segment which they are concerned
with.


Second, they filter and process environmental
information

into a form which is useful to organization and then
transmit

this information through
established channels
.


Third, they protect the core from undue disruption by
removing the need for it to interact directly with
environment.


Finally, they represent the organization to the
environment.


At a motor vehicle manufacturer, the main boundary
spanner is the
car dealer
.

The Role of Boundary Spanner(cont.)

The Use of Information Technology
in Complex Environments


Complex and dynamic environments require
extensive

environmental scanning and
flexible organizational responses
.


Specific
structural units
and positions are often created to
undertake this function.


Regardless of structural response
, organizations facing such
environments are intense users of information technology.


There are some
outcomes

of application of communication
technology:


I
ncreasing
effectiveness

of organizations


Unpredictable environments will become more
manageable


Organizations considering that they have capacity to operate in
more unstable environment



A Synthesis: The organization and
Environmental Uncertainty


There are three key dimensions to any organization’s
environment:
capacity
,
stability

and
complexity


The capacity of an environment refers to the degree to which it
can support growth. For instance: the availability of finance,
customers,
resource inputs
.


The degree of instability in an environment is captured in the
stability dimension.


Dynamic environment


financial markets


Stable environments


cement manufacturer


Environmental complexity is the degree to which the
environment is concentrated on just a few elements.


Simple environments


a small mining company


Complex environments


shipping company

A Synthesis: The organization and
Environmental Uncertainty(cont.)

Stable

Simple

Complex

Dynamic

Abundant

Scarce

Three
-

dimensional model of environment

Population Ecology Theory

1.
Adaptation of Darwin’s concept of
survival

of
the fittest
.

2.
Argues that populations of organizations
vary and that the environment selects out
only those types that are best suited.

3.
Argues against the importance of
managerial influence in the long
-
term
survival of an organization.

4.
Most appropriately applies to whole
populations.

5.
Controversial, but most scholars see some
merit to the arguments.


Population Ecology Theory (cont.)

Population ecology theory

seeks to explain


the rate at which new organizations are
born (and die) in a population of
organizations.

A
population of organizations

comprises the


organizations that are competing for the


same set of resources in the environment.

Different organizations within a population


may choose to focus on different


environmental niches
, or particular


sets of resources.


Population Ecology Theory (cont.)

According to population ecology, availability


of resources determines the number of


organizations in a population.


The amount of resources in an environment
limits
population density

the number of
organizations that compete for the same
resources in a particular environment.


Population Ecology Theory (cont.)

Population
-
ecology view of the change process

Variation

Large number

of variations

appear in the

population of

organizations

Selection

Some

organizations

find a niche

and survive

Retention

A few

organizations

grow large and

become

institutionalized

in the

environment

Institutional Theory


Institutional theory
: proposes that
organizations are influenced not only by
their internal processes but also by the
need to adapt to the institutional
pressures in the external environment.


This need
for adaptation then leads to
behaviors being repeated and becoming
‘institutionalized’.


Resource
-
dependence Theory


Resource dependence

theory argues that

the goal of an organization is to:



Minimize its dependence on other

organizations for the supply of scarce
resources







AND



To find ways of influencing these

organizations to make resources

available


Resource
-
dependence Theory
(cont.)


The strength of one organization's
dependence on another for a particular
resource is a function of:




How vital the resource is for survival




The extent to which the resource is

controlled by other organizations